By Yinka Kolawole
The mortgage industry in Nigeria bore the full weight of the effect of the unprecedented economic crisis that rocked the world in from late 2007 to 2008 spilling into  2009. It  also suffered severely from the reform of the banking sector during the year.

The mandatory recovery of loans by the Central Bank of Nigeria (CBN) from debtors of banks led to further depression in the housing sector, as a result of paucity of funds for real estate development and lull in the property market.

Following these developments, stakeholders have been speaking on ways to re-position the industry in the new year.
The general consensus include the completion of the mortgage sector reform, regulation of the professionals in the building industry, the removal of delay in the land ownership and building regulatory process, major infrastructure development and the translation of the National Housing Policy into reality.

They opined that in order to attract extensive funding to the real estate sector in 2010, government must expedite action on the passage the proposed amendment of the Land Use Act presently before the National Assembly.

They contend that housing corporations should not be seen as short term vehicles for providing houses to a specified market segment but as robust sustainable institution established to provide the social housing option.

“They should be set up as Public_Private Partnership (PPP) entities and given mandate to work with developers, financiers and governments toward the attainment of  housing goals.”

According industry operators,  the mortgage sector reform should be completed and must include initiatives which Housing Cooperatives could be transformed into Real Estate Investment Vehicles including Real Estate Investment Trusts and Primary Mortgage Institutions.

Speaking on the way forward for the sector in 2010, President, Mortgage Banking Association of Nigeria (MBAN), Mr. Abimbola Olayinka told Financial Vanguard, “I expect the Central Bank of Nigeria (CBN) to announce a reform package for the industry in the new year.”
“It is most important for the CBN to announce the reforms for the mortgage sector and this is expected to be made soonest.

We also encourage our mortgage institutions to be well prepared to receive the announcement by commencing various ways to recapitalise.”

Olayinka affirmed that the association has initiated  several programmes to position the sector to be more effective, such as: Liquidity Facility for the mortgage sector, standardisation of mortgage underwriting procedure, publicity and visibility of the sector, human capacity development, and meeting with appropriate authorities to re_work various laws inhibiting the growth of the sector.

“The issues have been brought to the front burner and we are happy with the level of our collaboration with the IFC towards achieving the Liquidity Facility window to be provided for our sector,” he said.

Speaking to Financial Vanguard last week, Dr. Biodun Adedipe, Managing Consultant, BAA Consult, counseled that primary mortgage institutions (PMIs) in Nigeria must adopt a different approach to their operations in order to get out of the woods, advocating a return to the fundamentals of lending.

“Business organizations, especially PMIs in Nigeria, must design and begin to do things differently. As well, PMI operators should recognize that anything can go wrong with a transaction, and thus consider the downside effects of transactions. Asset bubbles should not be basis for mortgage lending, but the earning capacity of the prospective borrower,” he said, adding that the timing of the bursting of an asset bubble cannot be safely predicted,

“As such, a return to the fundamentals of lending is an important lesson to learn from this crisis”.
Adedipe asserted that the PMIs should, among other things, pay attention to: systematic building of long_term fund sources, notwithstanding what the environment is saying, noting that Nigeria has had paucity of long_term funds for decades because of the structure of the economy and the general attitude towards investment.

He said that they must consistently boost capital such that working capital is expanded and stick to their business model and the essence of mortgage financing. “Diversification should be done with utmost care and well_thought out strategies while continually enhancing the knowledge and skills of their people, and especially create an environment for as many entrepreneurs as possible to thrive.”

The CBN Governor, Mallam Sanusi Lamido Sanusi, noted that given the funding challenges confronting the mortgage sector in the face of the dearth of long term deposits coupled with low level of capitalization of the PMIs, there is an urgent need for a liquidity/re_financing facility for the sub-sector to function effectively in the coming year.

Sanusi said that the apex bank is ready to provide necessary support to establish a Mortgage Refinance/Liquidity Company (MRC) as a Special Purpose Vehicle (SPY) to re_vitalize the sub_sector, with a pledge to provide up to 10 percent of the required capital.

“A Mortgage Refinance/Liquidity Company (MRC) has been proposed as part of the reforms of the housing finance sub_sector, as a Special Purpose Vehicle (SPY) to re_vitalize the sub_sector. It would be a specialized second_tier institution which would provide short_term liquidity, long_term funding or guarantees to mortgage originators and housing finance lenders (including DMBs and PMIs).

“It would purchase loans with recourse or receive assignment of mortgages/loans, acting as intermediary between lenders and the capital market and would issue bonds in order to raise long_term capital. It would be a catalytic tool for the development of the secondary mortgage market and a precursor for securitization. In terms of funding, the MRC is expected to be private_sector driven and its seed capital would be sourced mainly from deposit money banks and PMIs, with the CBN providing necessary support and not more than 10 percent of the capital,” he stated.